ITC general exclusion orders are an increasingly popular tool to fight knockoffs

October 2016 | SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

October 2016 Issue

Though the US International Trade Commission (ITC) is most often thought of in terms of high stakes patent litigation, the issuance of a general exclusion order (GEO) by the ITC has always been a powerful tool for intellectual property owners to fight counterfeits and knockoffs. Word of the benefits of obtaining a GEO seems to have spread as in recent years the numbers of these orders, and the parties seeking them, have been increasing rapidly.

Companies seeking to stop a tide of imported knockoffs often find themselves playing legal whack-a-mole – they spend a great deal of money and time filing repeated cases in the US district courts against the sellers they can identify, but after it all find that the orders they worked so hard to obtain are difficult to enforce against small overseas companies which simply cease their official operations then re-emerge having changed their names, locations or channel of importation.

And this applies only to the sellers whom the intellectual property owner can identify as selling large volumes – companies or individuals selling on eBay, Amazon or other websites often operate through aliases which make them hard to identify or locate, or simply do not individually sell enough product to make a suit against them cost-effective, and the remedies offered by the websites to address counterfeits can be inadequate.

Parties who register their trademarks with US Customs and Border Patrol are often frustrated by the limited scope of products covered, especially the fact that the registration does not address copying of trade dress or design patents. For makers of products which are popular or widely imitated the shortcomings of the district courts, customs registration and websites can be extremely frustrating and expensive – for example, in the case of Farouk Systems, Inc., owner of the CHI mark, the trademark owner filed over 21 lawsuits in the US district courts, hired a company to monitor internet websites selling unauthorised products, and worked with eBay to prevent sales of unauthorised infringement and was still unable to stop the tide of infringing products. (USITC Inv. 337-TA-637, Commission Opinion, 20 June 2009.)

In the case of Louis Vuitton, the company tried numerous avenues to prevent counterfeit bags – sending cease and desist letters, bringing trademark enforcement actions in the US district courts, and even instituting criminal proceedings against the sales of counterfeits, all to little avail, due to the fact that so many websites sold knockoff items and the manufacturers and sellers of the counterfeit bags easily formed and dissolved. (USITC Inv. 337-TA-754, Commission Opinion, 13 June 2012.)

In the case of LitePanels, an Emmy-winning producer of lighting panels, their products were so widely copied that over 60 manufacturers produced over a thousand infringing products for sale, and the accused infringers imported their goods under multiple and changing business and brand names, engaged in extensive rebranding, changed the methods of importing their products, and even admitted that they would attempt to circumvent any orders directed towards them. (USTIC Inv. No. 337-TA-804, Commission Opinion, 28 February 2013). Companies like these are increasingly turning to the ITC to obtain relief, as Farouk Systems, Louis Vuitton and LitePanels did.

A GEO from the ITC allows brand and intellectual property owners to stop all imported knockoffs from being imported into the United States. The GEO offers many advantages over pursing counterfeiters in the US district courts, many of which relate to the fact that proceedings in the ITC focus on infringing products, regardless of who makes them, unlike the district courts, where one can only obtain injunctions against the defendants named in the suit.

If the Commission issues a GEO, it is against the counterfeit and knockoff products, so any and all infringing products are excluded from entering the United States – regardless of the identity of the importer or manufacturer. In fact, a GEO may be obtained even where all the accused infringers default or fail to appear. Thus, GEOs reach infringing products of parties that were not part of the investigation, and even to parties which may not have been producing infringing items when the GEO issued. Thus, unlike the district courts, the fact that sellers may change their names or identities is not a problem, as the remedy is directed to infringing goods, not the sellers.

Resolution can often be much faster than a district court proceeding – by law ITC cases cannot take more than 16 months, however, in practice the majority of GEO cases are resolved in nine months or less. This, combined with the fact that all imported knockoffs can be addressed in one proceeding rather than multiple ones, makes the ITC option relatively efficient and inexpensive. In addition, GEOs can be obtained for infringements of utility patents, design patents, trademarks, copyrights, trade dress and other forms of intellectual property.

The numerous advantages of a GEO described above explain why it is so attractive to holders of intellectual property, and in recent years they have been increasingly availing themselves of the ITC as a forum to fight knockoffs. Since the beginning of 2012, over one-third of the exclusion orders issued by the ITC (36 percent) have been general exclusion orders. Moreover, the majority of the cases involving the exclusion orders (62 percent) were resolved without a trial and in under 9 months. Nor were the general exclusion orders limited to infringement of utility patents – 29 percent, or almost a third, involved the infringement of either trademarks or design patents.

Many of the companies seeking these orders are high profile. Parties who have obtained such orders in recent years include Farouk Systems, Louis Vuitton, Converse, Crocs, Segway, Canon and Epson, among others. The orders have covered products as diverse as hair irons, purses, shoes, toner cartridges, toy fish, hoverboards, hair irons and LED devices.

As the list above shows, non-US based companies have standing at the ITC provided that they can show both ownership of the relevant intellectual property and the existence a domestic industry in the US which can be done by, for example, providing evidence of investments in US employment, manufacturing or research. To obtain a GEO, the rights owner must also demonstrate either that there is a pattern of infringement of the intellectual property or that the infringers are likely to circumvent an exclusion order by, for example, changing their name or location.

The ITC follows the same substantive law as the district courts with respect to determining infringement of patents, trademarks and trade secrets, and goes through similar, though expedited, version of discovery that lasts a mere 5-7 months. As noted earlier, almost two-thirds of cases seeking a general exclusion order are resolved at this stage, with minimal discovery and without a hearing, due to defaults, settlements or resolution by a motion for summary determination.

However, if the investigation proceeds to a hearing, there are some procedural differences from district court. Rather than a trial before a generalist federal judge and jury, involving just the private parties, proceedings at the ITC involve a hearing before administrative law judges specialising in intellectual property cases, and there are no juries. In some cases, an investigative attorney from the ITC will participate in the investigation and hearing along with the private parties, as a representative of the public interest.

Due to the statutory mandate that ITC proceedings be resolved as expeditiously as possible, the hearing is within nine months of the institution of the investigation, and is sometimes earlier. Within three months of the hearing, and within 12 months of the beginning of the investigation, the administrative law judge issues her decision on whether the intellectual property rights are infringed, and whether they recommend that the rights holder be granted a general exclusion order. After that the decision is reviewed by the ITC and its commissioners, with the final order issuing no later than 16 months from the time the investigation began.

The ITC’s GEO procedure offers owners of widely imitated or counterfeited goods a powerful tool to fight knockoffs, with many advantages over district court proceedings or other methods of fighting counterfeits. Though this tool’s use was earlier overshadowed by the ITC’s reputation as the preeminent forum for high stakes patent litigation, that perception is changing with increasing numbers of brand and rights owners taking advantage of the procedure.

Aarti Shah and James Wodarski are members of Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo. Ms Shah can be contacted on +1 (202) 434 7408 or by email: ashah@mintz.com. Mr Wodarski can be contacted on +1 (617) 348 1855 or by email: jwodarski@mintz.com.